Answer

Firebird Electric, US

Executive Summary

The assignment concludes that the company should outsource the design and production of the new housings because it is a cheaper alternative as compared to making the entire housings at the company’s facility. The cost of outsourcing production is $790,000, while the overhead costs associated with making the housing surpass the outsourcing costs. The evaluation and selection process for new suppliers should focus on the quality of products supplied, the costs, the delivery times and the production capability of the suppliers. The company should thoroughly assess the quality of products supplied by each supplier by visiting the production facilities and sampling products. The company should also ensure that selected suppliers have implemented MRP systems to ensure quality products and timely delivery. Each supplier’s delivery performance in the past should be used to rate the supplier’s ability to deliver product on time, which is a crucial requirement. Finally, the company should enter into long-term contracts with qualified suppliers.

Question one

The differences between make, buy, and outsourcing decisions

The total costs for outsourcing the production of housing are calculated below to arrive at a figure of $790,000.

Total buying costs

The F.O.B. purchase price                  $750,000

Receiving and inspection cost            $35,000

Annual order processing cost              $5,000

Total cost                                            $790,000

The total production costs are calculated below to arrive at a figure of $8,609,988.

Production costs

Resin cost/unit            $1.00

Total resin costs                                  $250,000

Precision 1 cost                                   $285,000

Wages/hour                 $18.00

Total wages per year   (2083 hrs)        $74,988

Total direct costs                                 $609,988

Plant operation costs                           $8,000,000

Total estimated costs                          $8,609,988

Recommended option

The recommended option for FireBird is to outsource the production of the housings to reliable suppliers who can meet the quality requirements set by Road-Master Car Company at an affordable cost and deliver the products on time.

Question two

The selection and evaluation of suppliers

The selection of suppliers involves several steps with the aim of reducing purchasing costs and increasing the value of purchases. The crucial steps in the selection include recognizing the need to select suppliers, identifying the crucial sourcing requirements, creating a sourcing strategy, identifying potential suppliers, limiting the suppliers in the selection pool, determining the best method to select suppliers and finally selecting the supplier and signing an agreement.

FireBird needs new suppliers because of the new products being developed by the company, which is the first step of the selection process. The sourcing requirements in FrieBird’s case include the quality of products produced by suppliers, the cost of products and the timely delivery of products. FireBird’s sourcing strategy is driven by the fact that the company wants to offer its suppliers long-term contracts for their full-service in a collaborative environment.

The stage of identifying potential sources is unnecessary in FireBird’s case because the company has existing suppliers who have been supplying the company with housings in the past.  However, if the company believes that the current suppliers are inadequate, it can conduct a search for information about suppliers based on their capabilities. The company should focus on manufacturers, as it wants suppliers who shall participate in the design and production of the housings.

The company should conduct a financial risk analysis of the suppliers who remain in the limited pool of suppliers using dun and Bradstreet reports. The firm should also evaluate the performance of current suppliers to determine whether to give them the new contract or award more qualified suppliers.

Supplier evaluation methods

Quality

A supplier should be able to supply products that meet or exceed the requirements of the client on a consistent basis. In the case of FireBird, the suppliers should be able to supply high-quality finished housings on time each time a shipment is expected given that late deliveries incur significant costs for the company. To ensure the quality of the housings, the company should send a team of experts to each supplier’s manufacturing location to assess the manufacturing processes. The experts shall also assess the supplier’s production capacity to determine whether the supplier can produce adequate quantities of housing to meet the FireBird’s daily demand, which is 1000 units per day. Depending on the capacity of each supplier, FireBird might decide to buy from more than one supplier. The experts should also consider reviews from past clients to determine whether the supplier provides consistent quality or fluctuates between poor and high quality housings. The past reviews should be sourced independently without the supplier’s assistance so that FireBird can have an accurate picture of a supplier’s past (Falsini, Fondi & Schiraldi, 2012).

Costs

The main objective of selecting suppliers is to get the best quality products at the best rate in order to maximize the company’s profits. Therefore, suppliers who offer quality products and meet the capability requirements might be rejected based on the prices they offer for their products. The selected suppliers must offer the housing prices in the above calculations ($3) or lower prices in order to qualify as suitable suppliers for FireBird.

Delivery and performance history

A key indicator of the quality and delivery of a supplier is the use of an MRP system to schedule and control production. The supplier’s lead-time is also a crucial indicator of supplier performance (Wu & Blackhurst, 2009), as the company is looking for a company with a cycle time that is lower than the company’s current cycle time of 30 days. FireBird shall also be very keen on a supplier’s previous delivery performance to determine how frequently the supplier delivered orders on time. The company should focus on performance data that dates back even years in order to ensure that it gets an accurate assessment of the supplier’s ability.

Conclusion and recommendations

The ideal supplier selected through the above process should have an effective MRP that coordinates the supplier’s production schedule and ensures that the quality of products is assured. The supplier should offer FireBird a price of $3 or less in order to qualify as well as timely delivery of products. The supplier should have an excellent delivery performance from the past and should have excellent customer reviews. The supplier should also be in a strong financial position and should be able to produce more than 1000 units each day in order to meet FireBird’s demand.